TPD cover could be lost after early super access

7 February 2020

Superannuation members looking to access their funds early could lose their right to claim insurance benefits available through the super fund if they fall ill or suffer a serious injury, according to Slater and Gordon.

The firm’s principal lawyer for superannuation, Annemarie Gambera, said there had been debate about whether people who had lost their homes due to the bushfires should be able to access their super early to help rebuild their lives.

“But it’s worth understanding the consequences of draining your super account to invest in something as significant as rebuilding your life now. Doing this could cause you to lose all insurance benefits available to you via your super membership,” she said.

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“What people need to know is that if there is no money in the superannuation account balance to pay the insurance premiums, the cover will lapse.

“If you are no longer working because you’re unemployed (your workplace burnt down and the business is not operating right now, for example) and your superannuation contributions stop, you may lose your rights to the insurance benefits through super.”

Gambera noted that draining super accounts to later build it up again did not necessarily mean that if a member was older and fell ill they would have less total and permanent disability (TPD) benefit, income protection, or life insurance. This was dependent on the fund’s insurance arrangement.

“However, an insurer may be unwilling to offer the same amount of cover to an older person, as it may consider them to be at greater risk of making a claim against the policy. There may also be issues with pre-existing medical conditions which may limit the applicable cover,” she said.

“Given the tension between people accessing their super now and leaving it there for retirement, it is worthwhile to consider alternative solutions for emergency relief funding, such as the Federal Government’s one-off and ongoing disaster relief payments for affected individuals and businesses, for immediate access to cash.”

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